The Frail Future of the EU-Mercosur Free Trade Agreement

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For two decades, the discussions over meat have delayed a proposed free trade agreement (FTA) between the European Union (EU) and Mercosur. This belated agreement intends to liberalize trade over multiple products between 27 European countries and the trade bloc comprising Uruguay, Paraguay, Brazil, and Argentina. After an initial agreement in 2019, the unwillingness of the French executive to continue negotiations with the Bolsonaro Administration delayed the ratification. 

In June 2023, with a new Administration in Brazil, President Von Der Leyen announced the European Commission’s intent to renew negotiations and reach a new agreement by the end of the year. This latest push represents the European ambition to shape trade flows and become a decisive player in the global economy. However, the future of this deal looks frail: domestic opposition, resistance from abroad, and a lack of support from European consumers all conspire against its success. 

In fact, it seems unlikely that the European Commission will meet the goal of reaching a new agreement before the end of 2023.

European farmer organizations and agricultural lobby groups such as Copa-Cogeca reacted against President Von Der Leyen’s declaration. Their representatives argued in the media that this FTA would make European farmers vulnerable to unfair competition. Spokespeople from other industries, such as sugar, honey, and ethanol, have followed, raising similar claims concerning their sectors.

 The agricultural ministers of France, Sweden, and Austria have echoed these same concerns and demanded that the Commission review the  2019 deal. In addition, representatives of the German and French green parties have joined the opposing coalition due to the environmental costs of agriculture in South America. Green members of the European Parliament (MEPs) have voiced concerns about the impact of the FTA on soil erosion and the deforestation of the Amazon. 

The South American bloc has an advantage in the sectors that oppose the FTA. For animal products, all four Mercosur countries have continuously ranked above Europeans in their Revealed Comparative Advantage (RCA), an indicator of how competitive a country is in a particular product relative to other countries.

For 2020, the RCA indicates that France (1.4), Germany (0.86), Sweden (1.06), and Austria (0.95) are at a disadvantage relative to Uruguay (14.43), Paraguay (7.29), Argentina (5.64) and Brazil (3.75). 

Then, if the agreement liberalized trade, meat would be imported into Europe from South America. Such a prospect represents a risk for European producers, who are less competitive than South Americans.

Indeed, Mercosur countries are some of the largest meat exporters to the EU. In the past 22 years, they have exported an average of 2.17 billion USD per year worth of meat into the European market. 

Imports of Meat into the European Union (EU) in 1000 USD (2000-2022)

 https://wits.worldbank.org

 South Americans also have an advantage over leading European producers of food products. In 2020, Brazil (2.67), Argentina (5.66), and Paraguay (3.13) were significantly more competitive than France (2.24) and Austria (1.67). According to their RCA, South America has an advantage in the industries that have mobilized against the agreement. Brazil is the world’s second-largest producer of ethanol and sugar, and Argentina is the fourth producer of honey. The relative disadvantage of European animal and food producers helps explain the movement opposing the agreement. They argue that Mercosur can produce meat and food at a lower cost due to inadequate environmental regulations.


Revealed Comparative Advantage (RCA) for Select Countries (2020)

Source: https://unctadstat.unctad.org/EN/RcaRadar.html 

In reaction, the Commission has announced an addendum to accommodate these concerns within the proposed FTA. First, they intend to introduce an exemption to limit imports from Mercosur on meats such as beef, pork, and poultry. It also wants to include ethanol, sugar, and honey as ‘sensitive’ products to be protected by import quotas. 

Second, they want to implement a protocol on environmental protection. Both parties would agree to implement the United Nations Framework Convention on Climate Change and the Paris Agreement on Climate Change. Officials have even raised the possibility of sanctions in case of non-compliance with regulations. 

The Commission believes the agreement will ‘level the playing field’ between European and South American producers by protecting domestic production and implementing higher environmental regulations. These issues have become part of the negotiations, and their inclusion in a final agreement will be pending till ratification. 

A simulation using World Bank data from 2020 indicates that European meat consumers stand to gain the most from this FTA. If the agreement eliminated tariffs on meats between both blocs, the price of beef, pork, and poultry would decrease in the European market. Adding up consumers, producers, and government surplus, the effect of liberalization on the total welfare reaches 5.8 million USD. Out of these, consumers are the primary beneficiaries. 

The reduction in prices would increase their surplus by 3.9 million USD. Europeans are keen consumers of meat, particularly the French, who consume twice the global average. However, lower prices would also decrease the profits of domestic beef, pork, and poultry producers, who would face higher competition and lower yields. Additionally, the EU would lose an estimated 1.5 million USD collected annually through tariffs on meat products. 

However, consumers have been largely absent from the conflict that followed President Von der Leyen’s announcement. Currently, the Commission is attempting to raise awareness of these benefits among civil society by explaining them in briefs and reports published by the EU. In addition, they are also pointing to the benefits for sectors such as agri-food products, industrial machinery, pharmaceuticals, and clothing. 

Producers of these goods would benefit from free access to a previously protected market like Mercosur. The Commission’s strategy is to create a coalition in favor of the FTA between consumer interest groups, producers of manufacturers, and processed food products such as wine or olive oil.

They expect that these groups will influence national executives and the European Parliament to ratify the agreement while simultaneously neutralizing the claims from the opposition through the proposed addendum. Still, news channels such as Euroactiv, think tanks such as Farm Europe, and lobbies such as the Eurogroup for Animals have disseminated the stance of the opposition through the media. 

While specific sites, such as Politico, also present the Commission’s case in favor, this has yet to be more successful at being picked up by the media. It is then possible that the opposition will be more successful at reaching public opinion.

It is still uncertain which coalition will be more effective at mobilizing public support to influence the decisions of MEPs and the heads of national governments. The national executives will have the opportunity to either stall or accelerate negotiations through the directives that the Council of Europe gives to the Commission. 

At a later stage, once negotiations are over, MEPs will also have an opportunity to reject the agreement by refusing to ratify it in the European Parliament. In both instances, the advancement of the EU-Mercosur FTA will be vulnerable to the influence of the coalition of sectors and environmentalists that oppose it. 

Moreover, the reaction of Mercosur countries to the addendum on quotas for ‘sensitive’ products and environmental regulations may further delay an agreement. The Brazilian president, Lula Da Silva, has refused the possibility of sanctions for the non-compliance of environmental regulations.

In Argentina, heightened political uncertainty has paralyzed its foreign policy, and a fragmented congress seems unlikely to deliver a speedy ratification. Indeed, in each of the Mercosur countries, the ratification of the FTA might become a contested and slow process if the opposition against them becomes mobilized.

Due to the domestic politics in the EU and in South America, these recently revamped negotiations are unlikely to lead to an agreement any time soon. Instead, the European media will continue to fuel the conflict between opposing and supporting coalitions as EU-Mercosur negotiations drag on.

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This article was edited by Brianna Karishma Budhram and Bowen Yao